Microsoft has agreed to substantially slash its patent and interoperability licensing fees, and will also offer interoperability information on terms compatible with open source licenses, according to competition commissioner Neelie Kroes.
Put together, these changes in Microsoft’s business practices, in particular towards open source software developers, will profoundly affect the software industry. The repercussions of these changes will start now and will continue for years to come, she said at a press conference.
The resolution follows the European Court of First Instance’s rejection last month of Microsoft’s appeal of the 2004 Commission ruling, which found Microsoft guilty of competition law violations and fined it almost 500m euros.
Kroes and Microsoft chief executive Steve Ballmer met for dinner in the Netherlands about a week after the ruling, and have been talking almost daily since then, Kroes said.
We will not appeal the CFI’s decision to the European Court of Justice and will continue to work closely with the Commission and the industry to ensure a flourishing and competitive environment for information technology in Europe and around the world, Microsoft said in a terse statement.
The key sticking point for the last three and a half years has been Microsoft’s foot-dragging over publishing server protocol interoperability information, and its inability to set a license fee acceptable to the European Commission. It was hit with another 280m euro fine last year for non-compliance.
Microsoft has now agreed to resolved these issues to the Commission’s satisfaction, Kroes said. There are 154 interoperability-related protocols at issue, according to Kroes, about 31 of which are covered in whole or in part by Microsoft patents.
Microsoft has agreed to reduce its royalty for patent licenses from 5.95% to 0.4%, Kroes said. For interoperability information not covered by patent, the 2.95% royalty Microsoft had pushed for will be replaced by a one-off 10,000-euro license fee, she said.
It could be possible for third-party licensees to work around the Microsoft patents, and avoid the higher royalty, Kroes indicated.
Independent open source software developers also get a reason to be cheerful in the form of another commitment from Microsoft not to sue them and to license its technology in a manner consistent with open source distribution models.
I told Microsoft that it had to make interoperability information available to open source developers. Microsoft will now do so, with licensing terms that allow every recipient of the resulting software to copy, modify and redistribute it in accordance with the open source business model, Kroes said.
I told Microsoft that it should give legal security to programmers who help to develop open source software and confine its patent disputes to commercial software distributors and end users. Microsoft will now pledge to do so, she said.
Microsoft has actually already made that second commitment as part of its year-old relationship with Linux distributor Novell, which included a Microsoft pledge to leave independent developers alone.
But some open source advocates such as the Software Freedom Law Center dismissed that promise as revocable, worse than useless, and based on an unrealistically romantic notion of non-commercial open source software developers.
Based on Kroes’ statement yesterday, the pledge Microsoft has now made to the European Commission is pretty much the same as that which came with the Novell deal, which will likely not go far to quell the concerns of the SFLC and others.
It certainly won’t go very far to relax Red Hat, the Linux distributor that Microsoft has had in its sights since the Novell deal was signed, given that commercial software distributors and end users are explicitly excluded from Microsoft’s latest promise.
Earlier this month, Ballmer was quoted as saying that Red Hat’s Linux customers should be aware that they are using Microsoft’s intellectual property, and that one day Microsoft will come calling for compensation. Red Hat indemnifies its customers against such action, should it come.
Red Hat, while welcoming the news yesterday, appeared cautious.
Our enthusiasm is somewhat tempered, however, by concerns that the patent arrangements may have not been made compatible with open source licensing, general counsel Michael Cunningham said in a statement. We will be carefully reviewing the arrangements in the coming days as further details are announced.
For developers who do sign protocol licensing agreements with Microsoft, Microsoft will have to give them the option of suing to enforce the contracts comply with the 2004 ruling, Kroes said.
Microsoft has now accepted that it must give legally binding guarantees to licensees about the completeness and accuracy of the information it provides and that the licensee can obtain effective remedies, including damages, from the High Court in London, she said.
As much as anything, this appears to be an effort by the Commission to put the last four years of talks behind it, by offloading future enforcement to the UK judiciary.
While at first glance this settlement appears to be a near-complete loss for Microsoft, Kroes was careful to avoid triumphalism, and attempted to not characterize the deal as a win for the European Commission over the American giant.
When the CFI rejected Microsoft’s appeal last month, the decision drew a hostile response from the US Department of Justice, which accused Europe of prioritizing competitors over competition to the detriment of consumers. Kroes’ response was to essentially tell the US to keep its nose out.
Two competitors closely involved in the European case, Sun Microsystems and RealNetworks, both declined to comment for this article. Both companies have previously filed and settled private antitrust lawsuits against and with Microsoft.
The European Committee for Interoperable Systems, a vendor group comprising 10 of Microsoft’s largest competitors, including Red Hat, Sun, Real, Adobe, IBM, Oracle and Nokia, welcomed the Commission’s announcement yesterday.
It is vital that the Commission ensures compliance with its March 2004 Decision in a way that enables effective competition from open source alternatives, ECIS said in a statement in which it also welcomed the new means to privately enforce Microsoft’s obligations in the UK High Court.
With the bulk of its Microsoft struggle essentially behind it, and the Commission’s confidence bolstered, attention will undoubtedly turn to other US companies that Europe has in its sights.
The shop is still open, I can assure you, Kroes said. The are a couple of other cases at our desk.
Intel is the largest technology company known to be in the queue. The EC charged Intel with antitrust law violations in July this year, over practices such as providing vendor incentives not to buy chips from rival AMD, and Intel has yet to formally respond.
Will the defeat of Microsoft give Intel a reason to seek a speedy resolution with the EC? Time will tell.
